Auto Sector - Monthly Volume Round-up - Sep'21 - Subdued Performance; Pre-festive Inventory Built-up Aided Dispatches - Reliance Securities

Key Findings:

Recovery from second COVID wave seems to be slower-than-expected despite favourable monsoon situation. Rural sales appeared more impacted, which is visible in muted performance of rural-centric vehicles like tractors and 2Ws in Sep'21. Whilst YoY volume witnessed double-digit decline, seasonality helped MoM growth.

2W segment witnessed subdued performance, while PV segment witnessed the worst performance and tractor volume saw sharp double-digit YoY decline. However, CV and 3W segments delivered healthy YoY and MoM growth albeit on lower base.

Overall retail volume was lower than wholesale volume for 2Ws and tractors, while pre-festive inventory built-up supported wholesale volume. Retail PV and CV volume was either in-line or better than wholesale volume.

Though the industry players are confident of strong bounce-back in the coming festive season with reduced restrictions and higher vaccination coverage, we expect subdued festive sales this time.

Key Highlights:

Indian automobile companies reported a mixed sales performance on YoY basis (up on MoM basis due to seasonality) in Sep'21, due to weak demand and higher base effect. Whilst consumer sentiment witnessed improvement in Sep'21 with better monsoon scenario, it continues to remain lower than pre-COVID level. Retail sales volume was impacted due to slower economic recovery, supply issue and price hike in few segments.

Wholesale volume was higher than the retail volume in 2W and tractor segments due to pre-festive inventory built-up, while it was better for PVs and CVs. PVs are in strong demand, but semiconductor supply constraint impacted the production of all PV players. However, CV and 3W segments witnessed healthy YoY growth due to low base. Surprisingly, the tractor segment underperformed with double-digit YoY decline.

Our View

Though steady ease in lockdown/curbs and higher vaccination coverage are expected to support retail demand in the coming months, we expect the industry to record subdued volume on YoY basis during the coming festive season, as recovery of rural economy is getting impacted due to uneven monsoon distribution, despite normalcy on aggregate basis. Whilst we believe increasing vaccination coverage and several government initiatives would support auto sales in 2HFY22E, we do not expect the quantum and pace of recovery to be as high and sharp in the coming festive season as witnessed last year. We expect only M&HCV segment to witness double-digit volume growth in FY22E. Nonetheless, long-term fundamentals continue to remain intact for automobile sector, in our view.

2W: BAL's sales de-grew by 9% YoY (up 8% MoM) to 4,02,021 units, while HMCL's sales fell by 26% YoY (up 17% MoM) to 5,30,346 units. TVSL's sales grew by 6% YoY and 19% MoM to 3,47,156 units.

PV & CV: M&M's auto volume de-grew by 22% YoY and 8% MoM to 28,112 units, while MSIL's volume de-grew by 46% YoY and 34% MoM to 86,380 units. AL's volume grew by 14% YoY and 2% MoM to 9,533 units and TTMT reported sales of 59,156 units (up 28% YoY and up 2% MoM).

Tractor: M&M's tractor volume de-grew by 7% YoY (up 89% MoM) to 40,331 units and Escorts' tractor sales volume de-grew by 26% YoY (up 55% MoM) to 8,816 units.

Our Top Picks: Ashok Leyland, Bharat Forge and RK Forgings

Link to the report

Source : Equity Bulls

Keywords